Emirates Telecommunications Corp (Etisalat) said on Tuesday it received its first credit ratings as the fast-expanding firm positions itself for at least one acquisition worth $500 million by October. Citing state-controlled Etisalat's strong market position, profitability and government affiliation, Moody's Investors Service gave the telecom operator an Aa2 rating. Standard & Poor's gave an A+ rating and Fitch an AA- rating.
Etisalat Chief Financial Officer Salem Ali al-Sharhan said the largest Arab telecom firm by market value solicited the rating as a "health check" on its financial position to help facilitate future acquisition plans. "It prepares us for future financing for expansion overseas or investments ... whether capital markets such as bonds and medium-term note programmes or commercial debt," Sharhan told Reuters.
Under Etisalat's founding constitution, the government of the world's fifth-largest oil exporter must own at least 60 percent of the telecoms company, which operates in about 16 countries including Egypt, Pakistan, Saudi Arabia and Indonesia.
While it can finance acquisitions of less than $500 million with its own cash, Etisalat would need to tap debt markets for "medium- and big-sized investments" valued at greater than $500 million, Sharhan said.
"We hope to have a few done (of that size) in one or two months," Sharhan said. "We have potential opportunities in the pipeline and are carrying out due diligence on some of them." Sharhan did not say which markets Etisalat could enter through acquisitions this year. Etisalat is expanding abroad as it faces stiffer competition in its home market, where telecom firm du broke its long-standing monopoly last year. Mobile phone penetration in the country of 4.5 million people exceeds 150 percent.
The firm said in April it could spend up to $4 billion on an acquisition or a licence to enter India as it seeks to tap into opportunities in the world's second-largest mobile phone market.
On Tuesday, India's Financial Chronicle reported that Etisalat could acquire a 51 percent stake in Swan Telecom for $1.1 billion. Having global ratings would give Etisalat "a good negotiation position in financing deals in terms of pricing and margins ... if your future projections are strong, then the risk is lower," Sharhan said.
S&P analyst Michael O'Brian said Etisalat would likely stay below a board-approved peak leverage level of 2.5 times debt to EBITDA (earnings before interest, taxes, depreciation and amortisation) ratio. For the 12 months to end-June, Etisalat's debt-to-EBITDA ratio was 0.6 times, S&P said. Adjusted total debt was about $2.9 billion, it said.
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